Thursday, 21 December 2023 09:55

Possible Christmas cheer?

Written by  Content supplied by Rabobank


There were some positive signs for Oceania dairy exporters in October, with commodity prices generally firmer.

Oceania FOB powder prices rallied more than 10% for the month on the back of less favourable milk production signals in New Zealand. Butter prices also firmed over the month, but cheese prices fell again in October as a weak US wholesale market dragged prices lower. Grey clouds continue to build over the production outlook in New Zealand.

For the key month of September, milk production was 0.4% below the same month last year on a volume basis (but higher on a milksolids basis).

This means that the volume of production for the season-to-date is trailing the previous season by 1%. Challenging seasonal conditions in the North Island have been the culprit.


After starting the 2023 calendar year close to the five-year average (just 4% higher), North Island bull prices are set to finish the calendar year back close to the five-year average after reaching historical highs in April and May.

Despite lifting above the five-year average through October, the North Island bull price dropped back into line in mid-November, closing at NZ$5.85/kg on 24 November.

US imported lean trimmings prices have been gradually falling (in USD terms) since a 2H peak in late September and are currently trading in line with the five-year average and very close to prices received late in 2022.

With the US import prices expected to slide a little further and any Chinese buying for Lunar New Year now potentially over, we believe NZ cattle prices will follow a normal seasonal decline to the end of the year.


After holding on to the lowest price range in a decade for the last three months, lamb prices finally succumbed to the high volume of Australian product and weak demand in key markets.

Prices dropped below the 10-year range to the lowest level for this time of year since 2016. The South Island lamb price was NZ$6.45/kg on 24 November.

Despite a lift in the last month following favourable rain in eastern Australia, Australian lamb prices remain at some of the lowest levels they have seen since 2015. With no signs of a strong recovery in the coming months, and with continuing high volumes from Australia, New Zealand lamb prices are set to enter the higher supply periods of the new year with soft lamb prices.

Farm Inputs

The major overseas exporters of fertilisers have been reporting peculiar numbers.

While the price of DAP in Morocco as been flat since early October, the price of urea in the Middle East has fallen 14.3% in 30 days.

This is due to a combination of lower fertiliser subsidies from the Indian government to its farmers and modest tender activity.

In addition, rainfall has been scarce in central Brazil, which is a concern for the start of the second summer crop (mainly corn), in early January. Every year, 15% to 17% of urea exports go to the South American agricultural powerhouse.

Added to this, OPEC decided on 30 November to extend crude oil cuts until 2024, which will ultimately have an impact on freight costs. International seabourne exports are already facing rough seas due to low water levels - for example in the Panama Canal - and pirate attacks in the Red Sea.

On top of that, the Chinese government announced that it may restrict fertiliser exports to guarantee affordable prices in the local market.

Interest and Exchange Rates

The upwardly-revised forecasts on the OCR, combined with rising expectations of imminent rate cuts in the US, sent the New Zealand dollar surging during the month.

The New Zealand dollar was up more than 3 cents against the US dollar in November, after opening the month at 0.5825 and closing at 0.6155.

The stronger tone in the currency will help lower the price of imported goods.

We think that this could mean that the aggressive tone from the RBNZ in the monetary policy statement is ultimately never delivered upon, and that the inflation rate may fall faster than expected. Interest rate swaps fell during November as the New Zealand market followed a global shift lower in bond yields.

If inflation does fall faster than markets are expecting (there are already signs of that) and the slide in yields continues, we could see swap rates fall further through December.

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